Driven by heightened demand for Bitcoin (BTC) block space, fueled by Ordinals inscriptions and the PEPE-fueled BRC-20 memecoin mania, miners have become direct beneficiaries of a sudden boom in transaction fees, increasing their bottom lines.

This surge has resulted in an unprecedented increase in the average number of transactions, and consequently revenue per BTC block mined.

Data from a recent Glassnode report sheds light on the revenue increase for miners in May, as they raked in a total of 12.9 BTC in mining rewards per block, with fee revenue surpassing subsidies for only the fifth time in Bitcoin’s history.

Coin Metrics data underscores this phenomenon further, revealing that on May 8, miners generated a staggering $41.16 million in daily revenue, a level unseen since late April 2022, when Bitcoin was trading in the $40,000 zone.

And though their daily revenue has tapered off since that peak, adding up the cumulative totals from the past 30 days shows that Bitcoin miners have earned a cumulative total of nearly $1 billion worth of BTC, which is not bad for a bear market!

However, despite this revenue revival, Bitcoin’s two largest publicly traded miners by market cap, Riot Platforms (RIOT) and Marathon Digital Holdings (MARA), have dipped significantly over the past month.

As of May 23, RIOT and MARA were 16.16% and 21.33% below their respective April highs.

This price action has raised concerns among investors, which is reflected in the large amount of short positions currently opened on both stocks.

Let’s dive into the specifics of market sentiment captured by short interest, and the potential for a technical breakout in Bitcoin mining stocks.

Legacy markets remains skeptical of BTC miners

When comparing the year-to-date returns of RIOT and MARA to BTC, it is evident that both have benefited from what’s known as a leveraged beta effect. Leveraged beta, in this instance, suggests that when Bitcoin’s value appreciates, these stocks outperform. Conversely, when Bitcoin slumps, they face deeper downside risk.

The intriguing aspect here is that despite the impressive returns of RIOT and MARA year-to-date, and their increased revenues over the past month, the short interest percentages on each remain alarmingly high.

This is proven by dividing the total number of shares sold short by the total float (amount of shares available for public trading).

For example, if a company had 10 million shares available for public trading (the float), and there were 1 million shares sold short, the short interest % float would be 10%.

Specifics vary but generally speaking, amounts below 5% are considered low and amounts over 10% are considered high, and thus vulnerable to short squeezes.

As per Nasdaq data, MARA currently has 25.68% of its float shorted:

While RIOT has at 13.48%:

This indicates that Wall Street and the broader legacy financial sector remain unimpressed by the strength Bitcoin and its miners have shown in the first half of 2023 and are expecting some reversion back to the lows in the near future.

Granted there are plenty of valid narratives for this bearish thesis:

• RIOT is already up 234% and MARA 174% year-to-date; how much higher from here is realistic?
• Looming regulatory hostility such as a White House proposal for a 30% Bitcoin mining tax and the SEC’s probe into MARA.
• The uncertainty surrounding the U.S. debt ceiling debate and its implications for equity markets.

And, the list goes on.

But while skepticism prevails among speculators, technical analysis offers a contrarian perspective on the potential for further upside from here in miner stocks. Let’s analyze the technical signal that suggests this selling might be overdone and whether it is a good time for offside shorts to consider heading for cover.

Short squeeze stars are aligning

What’s most remarkable about the stellar starts both RIOT and MARA have had in 2023, is that despite being up multiples from January, neither appears to be overstretched from a technical standpoint. A sign of just how beaten down their stock prices were in 2022.

This is underscored by the fact that though they're up 242% (RIOT) and 183% (MARA) year-to-date both are still 80%+ removed from their 2021 all-time highs, and are only just now re-crossing their 200-day moving averages (red line on the chart).

As shown below, April was the first time MARA traded above all of its moving averages since late December 2021, when it was trading in the high $30 range. More encouraging is the fact that throughout May, it has been back-testing and, so far, holding this breakout.

As the arrow above shows, the last time previous to this that MARA broke above its 200-day moving average after being held below it was July 2020, when its stock price was trading around $1.30.

Following that 200-day breakout, it held the trendline throughout the next eighteen months and rode it to an all-time high of over $76 by November 2021.

That’s not a bad return on investment.

Similar behavior is also being shown by RIOT, which last broke above its 200-day MA (red line) when it was around $2 in May 2020 before making highs above $71 just eight months later, in February 2021.

A bullish pre-cursor indeed.

If Bitcoin is able to regain the momentum it lost in May, regain the $30,000 mark, and begin a leg higher in June, analysts should be on the lookout for BTC mining stocks to continue their out-performance due to the leveraged beta effect and excessive short interest that may be forced to cover which would push prices higher.

Alternatively, if Bitcoin continues its downward trend into the summer then these stocks will almost certainly fall further than the price of BTC on a percentage basis.

In any event, it will be an interesting niche of the market to keep an eye on as things develop into the monthly close.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.